SEC tells companies to disclose climate risks
By Steven Mufson
There's been a lot of talk about climate change and the impact various legislative proposals might have on companies. Now the Securities and Exchange Commission wants companies to tell investors about it too.
The SEC commissioners on Wednesday voted 3-2 to approve new interpretive guidance that clarifies what publicly traded companies need to disclose to investors about climate-related 'material' effects on business operations, whether from pending legislation, the physical impacts of changing weather or business opportunities associated with substitutes for fossil fuels. It's an important step in raising investor awareness about climate change issues, and in focusing businesses on the potential costs, said environmentalists and other disclosure groups.
But given the highly uncertain nature of climate change and the political winds buffetting proposed cap-and-trade legislation, some lawyers say it may be hard for companies to judge just what to say.
For some environmental groups, SEC's move marks the culmination of years of effort. More than a dozen investors managing over $1 trillion in assets, plus Ceres and the Environmental Defense Fund, first requested formal guidance in a petition filed with the Commission in 2007, then petitioned again in 2008 and 2009.
In a statement, here's what Ceres said:
"Today's vote is a clarion call about the vast risks and opportunities climate change poses for US companies and the urgency for integrating them into investment decision making," said Ceres president Mindy Lubber, whose group helped organize the investor petition. "The business risks of climate change cannot be ignored. With this guidance investors can make more sound decisions based on better information - and businesses will have a level-playing field with clear standards and expectations for disclosure."
In the same release, Anne Stausboll, chief executive of the California Public Employees Retirement System (CalPERS), the nation's largest public pension fund with more than $205 billion in assets under management, said: "Ensuring that investors are getting timely, material information on climate-related impacts, including regulatory and physical impacts, is absolutely essential. Investors have a fundamental right to know which companies are well positioned for the future and which are not."
SEC Chairman Mary Schapiro said that the new guidance was designed to help companies interpret existing requirements rather than to establish entirely new requirements.
"Today's guidance will help to ensure that our disclosure rules are consistently applied, regardless of the political sensitivity of the issue at hand, so that investors get reliable information," she said. "Today's guidance will help to ensure that our disclosure rules are consistently applied, regardless of the political sensitivity of the issue at hand, so that investors get reliable information."
She also went to some length not to get sucked into the climate change debate:
"The Commission is not making any kind of statement regarding the facts as they relate to the topic of 'climate change' or 'global warming.' And, we are not opining on whether the world's climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics."Instead, she added, "The discussions, debates and decisions that are taking place in the U.S. and elsewhere on this topic have implications under our existing, long-standing disclosure rules." Commissioner Kathleen L. Casey dissented, saying that climate change was still a matter of debate, that the effects were many years or decades away, and that the interpretive guidelines were "unnecessary." She said:
"There is undoubtedly a constituency that is interested in, and has long pressed the Commission to require, more extensive disclosures on environmental issues in order to drive particular environmental policy objectives. The issuance of this release, however, at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux, makes little sense. Most importantly, I do not believe that this release will result in greater availability of material, decision-useful information geared toward the needs of the broad majority of investors."
Even critics of the SEC's move agreed that it was significant.
"It's certainly a significant action and is going to merit close attention by public companies. This is not a negligible little act," said Kevin A. Ewing, a lawyer at Bracewell & Giuliani. But he said that even the three-person majority at the SEC didn't agree on how the guidance should be interpreted. "This shotgun pattern of explanations will make it hard for companies to apply the guidance with confidence," he said. And he added that the highly uncertain prognosis for legislation, or what the legislation might contain, made company forecasts of impacts hard or even counterproductive for investors. "I would say at some point, a gray line I agree, one can figure out what the effect of legislation might be but it might be so speculative as to mislead the public."
By contrast, Jeffrey Grill, a partner with the corporate and securities practice at Pillsbury Winthrop Shaw Pittman LLP, said that many companies are already making climate-related disclosures and that expanding those wouldn't be a burden. "Right now the emphasis at the SEC is on risk management," he said. "This falls in line with that."
Steven Mufson| January 27, 2010; 4:40 PM ET Save & Share:
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